The Most Overlooked Clients in Wealth Management

Long ignored, Latinos offer a huge, untapped opportunity.

(Bigstock photo)

(Bigstock photo)

With renewed attention being paid to the Black Lives Matter movement, advisors are striving to meaningfully cater to minority investors. Perhaps the most overlooked group are the 60 million Latinos in the U.S.

Latinos constitute 18% of the population, possess $1.5 trillion in buying power, and more than half are under the age of 29, according to a 2020 Pew Research Center report. And yet financial advisors often overlook Latinos as a target market.

The median household income for Latinos in the U.S. is now over $50,000 a year and over 2.1 million Latinos have assets valued above $400,000, according to a 2019 Pew Research report. However, Latinos are also at a deficit in savings because only 31% participate in employee-sponsored retirement plans, compared to 48% of all other workers aged 21 to 64.

Most Latinos in the U.S. live in five states: California, Texas, Florida, New York, and Arizona.

The New York Times columnist Nicholas Kristof pointed out last month that Latinos live longer than other ethnicities. They have a life expectancy of 81.8 years compared to 78.5 years for whites and 74.9 years for Blacks. He partly attributed their longevity to their reliance on “faith, family and community ties.”

As a growing but often untapped market, Latinos need to have their advisors understand their heritage, speak their language (figuratively in some cases and literally in others), and demonstrate that saving long-term will provide a secure future.

Louis Barajas, a member of the CNBC Advisory Council, reported that his parents were “unbanked” because they were distrustful of institutions based on the rampant corruption in Mexico where they were raised. He concluded that “the Latino community still trails way behind in investing, specifically in well-diversified investment portfolios.”

George Perez, a founding partner and wealth advisor at Miami-based GenTrust, which has $3 billion in assets and offices in New York City and Puerto Rico, said many advisors overlook the burgeoning Latino market because “they don’t understand the Latino culture. You cannot speak to a Mexican family, the way you speak to a Cuban, Dominican or Puerto Rican family.”

Perez, who was born in Cuba but immigrated to New York City at age four, urges advisors to do research on each client, noting “advisors need to understand the food and culture to understand their needs. You can’t just read a book.”

Because so many Latinos remain close to relatives, advisors often become part of the family. “You get invited to their weddings; you become part of the family,” Perez observed.

In Miami, where Perez is located, 70% of the population is Latino and more than half are Cuban-Americans, which makes tapping into their culture that much easier, compared to working in Maine or New Hampshire where few Latinos live.

GenTrust appeals to a targeted audience of affluent Wall Street executives, entrepreneurs, and professional athletes who have a minimum of $10 million to invest, but Perez emphasizes that there’s considerable discretion in attracting investors who don’t meet that minimum. For example, it has attracted professional athletes “who didn’t have a $1,000 in their bank account” but knew it was only a matter of time before they signed a lucrative contract.

Perez is also dedicated to hiring Latino advisors. “We hire by word of mouth and family to family and go to Hispanic colleges. When you’re speaking to a person from Latin America or is Latino, the fact that you speak their language, that’s the first check off of the box,” he said.

But many Latinos resist contacting advisors because they’re “unbanked and undocumented,” noted Luis Maizel, co-founder for the past 31 years of San Diego-based LM Capital Group, which oversees $5 billion in assets for pension plans and endowments. They’re afraid of depositing savings in the bank because “they’re not sure if that money will be available to them if they need it,” he said.

Hence, advisors trying to lure Latinos must “educate them and lower the minimum requirement needed to open an account,” said Maizel, a native of Mexico who has taught at Harvard Business School. Let them know “there are strict rules that protect the investor, that regulators control what the advisor does and your money is secure.”

If start-up minimums ranged from $50,000 to $100,000, rather than half a million dollars, advisors could attract more Latino families. Advisors need to convince Hispanic investors that they’ll “generate more than by having money sit in the bank where they pay next to nothing in interest or sitting under the mattress,” he said.

Latinos need to know that investing with a firm that “will make their future better” is the underlying message advisors must cultivate, suggested Maizel.

The best way to reach older Latinos born in Cuba, Mexico, or Latin America, is by buying ads on Univision or Telemundo, the two dominant Hispanic TV stations, where they spend much of their free time, Maizel suggested. The younger generation already feels as if they’re part of the American culture, and require more of a long-term plan to build success, with the knowledge that their money is secure and will grow.

Most of all, Maizel insists, advisors must build trust with their Latino target audience, who generally are new to investing. “Explain how you make money and how they make money. Explain what a fiduciary does. That will go a long way to winning their trust.”

Reaching the Latino market isn’t easy, acknowledged Orley Pacheco, head of wealth management at ARS Capital Advisors in Jericho, N.Y., which oversees $125 million in AUM. Many are suspicious of what financial service firms offer. Some supermarket owners and contractors, for example, have come into his office with hundred dollar bills stuffed in a bag to open an account, with untaxed income.

“No thank you,” he explained. “I can’t take that business.”

Instead ARS Capital Advisors is trying to network and connect with Hispanic centers of influence to show them the benefits that accrue with investing in firms that can build their retirement income.

Pacheco says he “doesn’t want to be pigeonholed” as targeting the Hispanic market. “We want to reach a mass market audience,” he says, including but not primarily Hispanics.

Pacheco is also involved in the Financial Planning Association Latino Knowledge Circle, where he hopes to mentor up-and-coming advisors. “I want to help the next generation of leaders and give them a leg up,” he says.

Solange Brooks, CEO of New America Alliance, a New York City-based nonprofit dedicated to building Latino success, says too many advisors carry stereotypes of Latinos that get in the way of their reaching out to them. “A jaded person could say that the recent national conversation that Latinos are ‘drug peddlers and rapists’ makes it difficult for advisors to develop a way to attract their business,” she said.

But Brooks says one way to attract them is for the financial advisor to develop strong ties to their community, which Latinos respect and respond to. “Where are you investing? What are you doing to help the community where you live? This is ingrained in the culture,” she notes.

Hence, she says impact investing would be a strategy that would resonate with many Hispanics. “Not only does that generate a good return, but it helps the community,” she adds.

“Understand their culture. Do the marketing based on that. Fill a need. You don’t have to speak Spanish to do that (but if you do that’s great),” Solange says.

“Get to know us. Latinos are all different. If you’re going to sell something to someone, you should know who they are,” Solange concludes.